Brexit may feel like old news to some, but with major uncertainties around the future of trade regulations the repercussions of the UK’s exit from the EU are very much an ongoing concern for the City of London.
On a positive note, the worst-case scenario of a ruinous exodus of assets, operations and people from the City post-Brexit has not been realised.
According to the latest, and final, results of the EY Financial Services Brexit Tracker staff and operational relocations have been revised down from peak figures.
Brexit-related staff moves to the EU have been slashed from a projected high of 12,500 announced after the 2016 referendum to just over 7,000 at the end of March 2022.
Ben Reid, insurance partner at EY, told Intelligentinsurer.com: “The reason, we think, is because firms were rightly planning for a hard Brexit. Given the uncertainty leading up to 2020, you could see why firms would plan for a worst-case scenario in terms of numbers of staff that needed to move. That’s why we think the announcements were for larger numbers of staff. The numbers now are substantially less.”
Since the 2016 referendum, 44 percent (97 of 222) of financial services firms tracked said they had moved or planned to move some UK operations and/or staff to the EU.
Of the total firms tracked, 38 were insurance firms, and 17 of those (45 percent) announced relocations to the EU.
The tracker also found that the number of new hires in the UK publicly linked to Brexit had risen to 5,400 at the end of March 2022, up from just over 5,000 for the three months to December 2021. The increase was mainly driven by an uptick in the number of staff recruited in London.
“As the tracker talks about companies that are relocating aspects of their operations to the EU, there are EU-headquartered financial service entities which have had to make some changes to their structures in the UK as well. So no doubt there’s some hiring related to how those entity structures have been changing,” Reid explained.
“More broadly, and looking at the London insurance sector specifically, the hiring is a good indicator of the optimism around the market, the performance of the market and the fact that there’s a great desire to widen the talent pool in the London Market.”
“Looking at the London insurance sector specifically, the hiring is a good indicator of the optimism around the market.”
Ben Reid, EY
Future issues
The EY tracker found that since the referendum, 24 financial services firms have publicly declared they will transfer a combined total of just over £1.3 trillion ($1.7 trillion) of UK assets to the EU. For the insurance industry, eight firms out of the 17 in the sector announced the movement of $70 billion of assets to the EU. Reid said it was worth noting that this data is likely to be incomplete, perhaps suggesting that the figure is higher.
“Ninety-seven firms announced their plans for post-Brexit and of those only 24 were giving any details of the assets they are moving. There’s some incompleteness there as firms can be reticent about some of this data. But for the insurance industry $70 billion is a pretty big number for only eight firms.”
The EY tracker found that the asset amounts being moved had stabilised. Reid said that as many of the relocation plans were announced a couple of years ago, pre-Brexit, “it was not a surprise to us that the number of announcements has tailed off”.
“The other reason, and the reason we decided to stop the tracker after five years, is that it’s now quite difficult to separate moves that might be because of Brexit and changes because of other strategic objectives for an organisation.”
Plans to move operations from the City to the EU may have tailed off, but the issue of UK–EU financial services trade equivalence remains unresolved.
In February 2022, the UK Parliament’s European Affairs Committee launched an inquiry into the UK–EU relationship to assess the impact of Brexit on the UK financial services sector. It will examine the future of trade with the EU in the absence of equivalence and the impact of regulatory divergence.
Asked about the ongoing uncertainty in cross-border regulation policy, Reid said: “When you look at insurance, the two key regulations are the Insurance Distribution Directive (IDD) and Solvency II.
“The IDD doesn’t include the concept of equivalence and Solvency II does not for direct insurance, so these have both been major focus areas for market firms and the trade associations.
“There’s hope that there will be a move towards greater equivalence and the industry has been very clear that that’s what they’d like to see. Let’s all hope it’s the case because it can only be a good thing from a financial services perspective for the UK and the EU.”
“The ECB desk-mapping review is interesting and important for financial services.”
Equivalence is not the only regulatory uncertainty: the European Central Bank’s (ECB) desk-mapping review began this spring. It will assess whether new EU hubs set up by international financial firms have enough senior staff and activity to justify the EU licences they have received.
“The ECB desk-mapping review is interesting and important for financial services. I understand the Bank of England will have the chance to review it, which is clearly a good thing and in the spirit that everyone would hope for,” Reid said.
“From an insurance perspective I’m sure the European Insurance and Occupational Pensions Authority will be watching closely in terms of what the outcome of that could be. One of the reasons is that it’s still a moving picture in terms of the position of assets and people potentially moving across to the EU.”
The COVID-19 pandemic has brought another facet to post-Brexit plans.
“Many countries to which firms have moved require a physical presence, particularly in terms of governance,” Reid said. “While people have been able to make permanent moves across if they’ve needed to fill particular roles, governance often happens on a monthly or quarterly basis. Regulators have been quite pragmatic in saying that some of those governance forums can happen virtually.
“But, as you’d expect, as travel has returned and restrictions are easing there’s likely to be much more of an expectation that those governance forums are happening face to face,” he concluded.
To view the full interview visit: intelligentinsurer.com
Image from Shutterstock / IR Stone
